The U.S. government has filed charges against seven people, alleging that they attempted to steal more than $600 million related to COVID-19 tax credits.
Those charged in the crime are Keith Williams, Jamari Lewis, Morais Dicks, Janine Davis, Tiffany Williams, James Hames Jr., and Ewendra Mathurin, all current or former New York residents. The scheme was allegedly headquartered at Credit Reset, a purported credit repair business owned and operated by Keith Williams.
The defendants were indicted by a grand jury—an indictment is merely an allegation. Defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
Government Allegations
According to the indictment, the defendants acted as tax preparers to file more than 8,000 false employment tax returns with the IRS, claiming COVID-related tax credits like the Employee Retention Credit (ERC) and the Sick and Family Leave Credit (SFLC) on behalf of themselves and their clients. Each of these returns was allegedly fraudulent, the government claims, in that they claimed SFLC over the amount of wages reported, listed the same wages as both qualified sick leave wages and qualified family leave wages, or claimed the SFLC and ERC for the same wages, none of which was permitted by law.
The indictment also alleges that many of the entities for which returns were filed were inactive, had no employees, had not previously filed tax returns, had no physical place of business, or failed to file Forms W-2 in a timely manner.
The defendants were said to have profited from the scheme by receiving tax refund checks from the U.S. Treasury and charging clients a fee or a percentage of the tax refund. They also allegedly recruited others into the scheme by paying them a percentage of fraudulently obtained U.S. Treasury checks.
The government claims that the defendants attempted to collect more than $600 million from the scheme—the IRS paid out approximately $45 million to the defendants and their clients.
The defendants knew what they were doing was wrong, the government claims, and they took steps to conceal the scheme. This included the defendants not listing themselves as paid preparers on tax returns and using Virtual Private Networks (VPNs) to hide their IP addresses while filing the returns.
The government charges that the defendants and their co-conspirators communicated using text messages, phone calls, and a Whats App group to carry out the scheme. According to the indictment, in one instance, Keith Williams sent Hames text-based messages describing the false statements they should provide when they called the IRS to check on the status of a tax refund.
The various tax credits mentioned in the indictment require taxpayers to provide an Employer Identification Number (EIN)—think of it as a Social Security number for businesses. If a prospective client didn’t have an EIN, the government claims that defendants provided one or helped the client purchase one (the IRS does not charge a fee for an EIN). The government alleges that the related entities were shell companies or companies that were previously operational but no longer active.
At some point, the IRS and Social Security Administration (SSA) noticed discrepancies in the filed returns and asked for additional information. In response, the defendants allegedly transmitted false information to the IRS and SSA.
Some defendants were also charged with submitted false Paycheck Protection Program (PPP) loan applications. As part of that scheme, the government claims that the defendants provided false supporting information with their applications, including bogus tax forms.
The defendants were charged with 45 counts relating to the scheme, including conspiracy to defraud the U.S., wire fraud, and aiding and assisting in preparing false tax returns.
Keith Williams, Lewis, Mathurin, Davis, Tiffany Williams, and Dicks were also charged with wire fraud in relation to fraudulent PPP applications they submitted.
According to IRS-Criminal Investigation (CI), the defendants did not try to hide their criminal activity openly. For example, Lewis, an aspiring rapper who uses the stage name “Mr. Chaketah,” posted on social media a recording of a song he wrote entitled, “I’m Really Sophisticated (IRS).” The album cover for his song featured the logo of the Internal Revenue Service. The lyrics include lines like, “That government bread I ran that s*** up like how am I gon’ lose?”
According to the CI, in a recorded call with a co-conspirator, Keith Williams compared the fraud scheme to “taking candy from a baby.” When investigators executed a search warrant at Williams’ home, they seized millions of dollars worth of luxury goods that they claim appeared to have been purchased using the proceeds of the fraud scheme. These included designer items from Rolex, Gucci, Louis Vuitton, Fendi, Balenciaga, and Versace and high-end vehicles, including a Land Rover, a Polaris Slingshot, and a Tesla Model Y.
In a statement provided to Forbes, IRS-CI New York Special Agent in Charge Chavis said, “Criminals have found ways to exploit every iteration of aid offered through the COVID-19 pandemic relief funds. The ERC was created to help businesses keep themselves and their employees afloat. Yet, the defendants allegedly stole $44 million from the relief pool and chose to spend their illicit gains on jewelry, designer clothing, and luxury cars. IRS-CI worked this case with our law enforcement partners to make sure that the egregious acts of those arrested today do not go unpunished. It’s time they face justice.”
Investigations And Sentencing
If convicted, the defendants face a maximum penalty of five years in prison for the conspiracy to defraud the United States charge, a maximum penalty of 20 years in prison for each wire fraud charge arising out of the ERC scheme, a maximum penalty of 30 years in prison for each wire fraud charge arising out of the PPP fraud and a maximum penalty of three years in prison for each charge of aiding and assisting in the preparation of false return charge.
IRS-CI and the United States Postal Inspection Service (USPIS) are investigating the case.
In a statement to Forbes, Christopher J. Cassar, who represents defendant Keith Williams, said, “The indictment is overreaching, and the government will be unable to prove that Keith William intentionally and knowingly committed any conspiracy or tax crime.”
Darnell D. Crosland, who represents defendant Dicks, said in a statement to Forbes, “Morais Dicks firmly denies the allegations against him and is determined to clear his name. While the indictment includes multiple defendants, it is crucial to distinguish Mr. Dicks’ actions and intentions from those of others. He has always conducted his business with honesty and integrity. The charges are unfounded, and we are prepared to challenge the government’s case. We are confident that Mr. Dicks will be fully vindicated.”
A request for comment made to the attorney representing Ewendra Mathurin was not returned.
It is not immediately clear from court documents whether Jamari Lewis, Janine Davis, Tiffany Williams, and James Hames Jr., are represented by counsel.
Refundable Credits
To understand the charges, it’s helpful to know how the various credits work.
Credits are appealing because they are a dollar for dollar reduction in tax. A refundable credit is even better in that you can benefit even if you do not owe any tax. Unlike a nonrefundable credit, with a refundable credit, if you don’t have any tax liability, the “extra” credit is not lost but is instead paid out to you as a refund.
Employee Retention Credit
Eligible employers are those that paid qualified wages to some or all employees after March 12, 2020, and before Jan. 1, 2022. Typically, to qualify, you must demonstrate that your business was shut down by a government order due to the pandemic during 2020 or the first three calendar quarters of 2021, or that you experienced a specific decline in gross receipts during the eligibility periods during 2020 or the first three calendar quarters of 2021. Some businesses may also qualify as recovery startup businesses for the third or fourth quarters of 2021 (otherwise, the ERC relief was phased out by Congress for businesses for that period).
The credit is 50% of up to $10,000 in wages, meaning that it can be as high as $5,000 per employee in 2020 and as high as $21,000 per employee in 2021 (totaling the $26,000 per employee that is regularly touted).
The ERC was available to most businesses, including tax-exempt businesses. However, it was not available to individuals, including freelancers and independent contractors.
Paid Sick and Family Leave Credit
Under the Families First Coronavirus Response Act (FFCRA), eligible employers were entitled to tax credits for wages paid for certain leave taken by employees during the COVID–19 pandemic to recover from any injury, disability, illness, or condition related to the vaccinations. This was called the Sick and Family Leave Credit, or SFLC.
The FFCRA was amended and extended, including tweaks to the SFLC, allowing eligible small and midsize employers to claim refundable tax credits to reimburse the costs of providing qualified sick and family leave wages to employees for periods of leave beginning April 1, 2020, through March 31, 2021. The result was a similar credit for wages paid for periods of leave beginning April 1, 2021, through September 30, 2021. The credit equals 100% of up to two weeks (to a maximum of 80 hours) of the qualified sick leave wages and up to 12 weeks of the qualified family leave wages that an employer paid for employers who took leave.
As with the ERC, if a business did not claim a sick or family leave credit on its original employment tax return, it could file an amended return.
Paycheck Protection Program
The Paycheck Protection Program, or PPP, is precisely what it sounds like: billions of (potentially) forgivable loans to keep workers on the payroll.
To help get the economy moving, the PPP wasn’t limited to corporations. Sole proprietorships, independent contractors, gig-economy workers, and self-employed individuals were also eligible. Funds from the program could be used for employee salaries, paid sick or medical leave, insurance premiums, mortgages, rent, and utility payments. Money could also be used to pay family, medical, and sick leave.
The PPP loan could be forgiven if companies met benchmarks for keeping employees on the payroll AND if the loan proceeds are used as intended (payroll, rent, mortgage interest, or utilities). A loan that is forgiven is typically treated as taxable income, but this was not the case for the PPP—the amount of any forgiven PPP loan is excluded from gross income.
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